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Sun reports $286 million loss

By Joseph Menn
Los Angeles Times

Sun Microsystems Inc., battered by the popularity of its rivals’ lower-cost computers, on Thursday said sales declined for the tenth consecutive quarter and that it lost $286 million, or 9 cents a share, in the three months through September.
The Santa Clara, Calif., computer maker said its loss more than doubled from the $111 million, or 4-cent, loss a year earlier.
Revenue declined to $2.54 billion from $2.75 billion.
“It’s brutal out there,” Chief Executive Scott McNealy said of the competition to sell server computers. “It’s a dog fight.”
For the first quarter in more than eight years, Sun reported negative cash flow from operations, an event its chief financial officer dismissed as a “blip.”
Sun shares slipped 16 cents to $3.63 in regular Nasdaq trading, then fell as low as $3.53 in after-hours trading following the earnings report.
The stock has slumped since early June, while most other technology shares have surged.
On a conference call with analysts, McNealy faced unusually hostile questions from critics who believe the company’s fundamental strategy needs an overhaul.
Two asked whether Sun’s board of directors had become more involved in the company or considered hiring a strong No. 2 to McNealy, who co-founded Sun in 1982.
“Been there, done that,” McNealy said.
Other analysts unsuccessfully sought a projection of when Sun would return to profitability with its present structure — or failing that, when the company would cut significant numbers of workers.
“If this performance is repeated, what kind of assurance do shareholders have that Sun will be more firm in expense reductions?” asked Sanford C. Bernstein analyst Toni Sacconaghi.
“It’s got a lot of variables,” McNealy responded. “You can’t just say ‘OK, if something happens, I’m going to do this.’”
Sun has lost money for the last two years, and its share of the server market has fallen from 16.7 percent in 2000 to 13.5 percent by mid-2003, according to IDC.
On the call, analysts said Sun appeared to be waiting for an overall economic recovery, a technology spending recovery, or a dramatic shift in the competitive landscape.
Sun executives denied that, saying that their new computers and other products stood to gain a greater share of the market even if nothing else changes.
In a sign of how the once cozy relations between big companies and analysts have chilled, Merrill Lynch & Co. analyst Steven Milunovich matched the flippant McNealy retort for retort.
Milunovich called two weeks ago for mass layoffs and a new focus at Sun.
After he asked Thursday how McNealy could work on changing at least the perception problem, McNealy responded: “You can help.”
“I’m trying, but you’re not listening,” Milunovich shot back.
Sun is aiming for a comeback by offering less expensive machines running the free operating system Linux and inexpensive desktop software.